The end of opus DEI: US corporations adapt to new political climate

It took less than two months after the presidential elections for USA Inc to begin scrambling to underline, or at least modify, its anti-woke credentials in readiness for the business opportunities of Donald Trump’s regime.

 

Among the earliest off the blocks, in January this year was BlackRock, the world’s largest asset management company, which exited the Net Zero Asset Managers’ Initiative, a five-year-old global group of asset managers committed to supporting investment aligned with the goal of next zero greenhouse gas emissions by 2050 if not earlier. NZAM is a former partner to the UN’s Race to Zero campaign.

 

BlackRock’s withdrawal, reportedly under pressure from Republican politicians, has left NZAM in disarray. In a letter to its members seen by Reuters, it stated that it had decided to conduct a review of its activities during which it was “suspending activities to track signatory implementation and reporting. NZAM will also remove the commitment statement and list of NZAM signatories from its website, as well as their targets and related case studies pending the outcome of the review.” That’s another way of saying goodbye to green investments, after one of the hottest years on record.

 

This retreat should come as no surprise. Western investors have had their fingers to the political winds for some time — witness the insidious evasions over commitments to private capital to mitigation and adaptation projects at serial climate change meets. BlackRock, in fact, is not an exception nor a trend-setter. In February last year, another green asset management initiative Climate Action 100+ reported the departures of J P Morgan Asset Management, State Street Global Advisors, and PIMCO.

 

All these moves proved prescient. Just five days ago (March 7) the Trump administration withdrew from the Just Energy Transition Partnership, a fund that helps developing countries transition from coal to clean energy, a follow-up to its second departure from the Paris climate accord.

 

Donald Trump is leading from the front in storming the battlements of wokeness and USA Inc has obligingly transformed itself into a faithful foot soldier. The principal casualty here is Diversity Equity and Inclusion (DEI) mandates, reversing decades of affirmative action that made the US the world’s most dynamic country. Many corporations started well before Mr Trump signed the relevant executive orders on his first day in office, as Forbes has painstakingly tracked. These corporations read early signals from the Supreme Court’s 2023 ruling in the landmark case involving Harvard University, limiting the use of race in college admissions.

 

By July last year, farm equipment maker John Deere stated that it would no longer support events such as Pride parades and would audit company documents to remove “socially-motivated messages,”. In August Jack Daniels and Ford Motor Co followed with similar DEI retreats. By November, the big guns had signed out: Boeing, Walmart, McDonald’s, Meta, Amazon.

 

Within weeks of the 47th President taking the oath of office, the list of companies joining the chorus line had lengthened rapidly: Target, Google, Amtrak,  Accenture, Pepsi, GM, Google, Disney, GE, Intel, PayPal, Chipotle and Comcast, Deloitte, Disney, Goldman Sachs, Coca Cola JPMorgan Chase, Morgan Stanley and Citigroup, BlackRock, Bank of America, and Victoria’s Secret.

 

Two things must be noted here. First, the DEI executive orders have been blocked by a federal judge in Baltimore on grounds of constitutional violations, including against free speech rights, which means corporations can legally hold off jettisoning their programmes. So what explains the corporate stampede for the DEI exits?

 

The explanation lies in the second point. Presidential Executive Orders apply exclusively to the federal government and the mandate extends only to private companies that do business with it. In the bigger picture, less than 5 per cent of private businesses contract with the US government. But the reality is that most of America’s biggest and most powerful corporations have significant contracts with the federal government, not least the FAANGs and investment banking behemoths.

 

These corporations have long been adept at adapting themselves to prevailing political climate, a skill businesses must cultivate in America’s fiercely polarised political and social milieu. In 2013, for instance, Wall Street and USA Inc lined up to put their might behind same-sex marriage. The conservative Goldman Sachs even flew a celebratory rainbow flag from its headquarters when the Supreme Court passed its landmark judgement in 2015.

 

But many companies that have no business with the federal government are leading the anti-DEI charge too — that includes, for instance, Disney, lingerie maker Victoria’s Secret, which once faced federal investigations in the past for racism and discrimination, Chipotle, Coke and Pepsi. Why are they jettisoning their DEI programmes?

 

Many of these corporations fear investigations by federal agencies for DEI initiatives, which one Executive Order has termed “illegal”. This is a valid apprehension given the Third World-style authoritarianism to which Washington is rapidly descending. Though many claim they’re pushing back, there’s no evidence of that yet.

 

It is also true that DEI mandates have been stalling in recent years and the executive orders are an expedient means of exiting commitments many corporate managements consider pesky. Though US corporate boards are admittedly more diverse than before, female directors in S&P 500 companies account for just a third and the share of racial and ethnic diversity on corporate boards has plateaued.

 

The US template for affirmative action, from primary education upwards, offered an inspiring and workable model for countries such as India, where the reservation system has done little to alter caste discrimination. Now in just one month, the world’s most powerful nation has made it acceptable for subjective perceptions of “merit” to override the objective reality of social discrimination.